The Universe of Discourse

Book economics

[I sent this out to my book discussion mailing list back in November, but it seems like it might be of general interest, so I'm reposting it. - MJD]

People I talk to often don't understand how authors get paid. It's interesting, so I thought I'd send out a note about it.

Basically, the deal is that you get a percentage of the publisher's net revenues. This percentage is called "royalties". So you're getting a percentage of every book sold. Typical royalties seem to be around 15%. O'Reilly's are usually closer to 10%. If there are multiple authors, they split the royalty between them.

Every three or six months your publisher will send you a statement that says how many copies sold and at what price, and what your royalties are. If the publisher owes you money, the statement will be accompanied by a check.

The 15% royalty is a percentage of the net receipts. The publisher never sees a lot of the money you pay for the book in a store. Say you buy a book for $60 in a bookstore. About half of that goes to the store and the book distributor. The publisher gets the other half. So the publisher has sold the book to the distributor for $30, and the distributor sold it to the store for perhaps $45. This is why companies like Amazon can offer such a large discount: there's no store and no distributor.

So let's apply this information to a practical example and snoop into someone else's finances. Perl Cookbook sells for $50. Of that $50, O'Reilly probably sees about $25. Of that $25, about $2.50 is authors' royalties. Assuming that Tom and Nat split the royalties evenly (which perhaps they didn't; Tom was more important than Nat) each of them gets about $1.25 per copy sold. Since O'Reilly claims to have sold 150,000 copies of this book, we can guess that Tom has made around $187,500 from this book. Maybe. It might be more (if Tom got more than 50%) and it might be less (that 150,000 might include foreign sales, for which the royalty might be different, or bulk sales, for which the publisher might discount the cover price; also, a lot of those 150,000 copies were the first edition, and I forget the price of that.) But we can figure that Tom and Nat did pretty well from this book. On the other hand, if $187,500 sounds like a lot, recall that that's the total for 8 years, averaging about $23,500 per year, and also recall that, as Nat says, writing a book involves staring at the blank page until blood starts to ooze from your pores.

Here's a more complicated example. The book Best of The Perl Journal vol. 1 is a collection of articles by many people. The deal these people were offered was that if they contributed less than X amount, they would get a flat $150, and if they contributed more than X amount, they would get royalties in proportion to the number of pages they contributed. (I forget what X was.) I was by far the contributor of the largest number of pages, about 14% of the entire book. The book has a cover price of $40, so O'Reilly's net revenues are about $20 per copy and the royalties are about $2 per copy. Of that $2, I get about 14%, or $0.28 per copy. But for Best of the Perl Journal, vol. 2, I contributed only one article and got the flat $150. Which one was worth more for me? I think it was probably volume 1, but it's closer than you might think. There was a biggish check of a hundred and some dollars when the book was first published, and then a smaller check, and by now the checks are coming in amounts like $20.55 and $12.83.

The author only gets the 15% on the publisher's net receipts. If the books in the stores aren't selling, the bookstore gets to return them to the publisher for a credit. The publisher subtracts these copies from the number of copies sold to arrive at the royalty. If more copies come back than are sold, the author ends up owing the publisher money! Sometimes when the book is a mass-market paperback, the publisher doesn't want the returned copies; in this case the store is supposed to destroy the books, tear off the covers, and send the covers back to the publisher to prove that the copies didn't sell. This saves on postage and trouble. Sometimes you see these coverless books appear for sale anyway.

When you sign the contract to write the book, you usually get an "advance". This is a chunk of money that the publisher pays you in advance to help support you while you're writing. When you hear about authors like Stephen King getting a one-million-dollar advance, this is what they are talking about. But the advance is really a loan; you pay it back out of your royalties, and until the advance is repaid, you don't see any royalty checks. If you write the book and then it doesn't sell, you don't get any royalties, but you still get to keep the advance. But if you don't write the book, you usually have to return the advance, or most of the advance. I've known authors who declined to take an advance, but it seems to me that there is no downside to getting as big an advance as possible. In the worst case, the book doesn't sell, and then you have more money than you would have gotten from the royalties. If the book does sell, you have the same amount of money, but you have it sooner. I got a big advance for HOP. My advance will be paid back after 4,836 copies are sold. Exercise: estimate the size of my advance. (Actually, the 4,836 is not quite correct, because of variations in revenues from overseas sales, discounted copies, and such like. When the publisher sells a copy of the book from their web site, it costs the buyer $51 instead of $60, but the publisher gets the whole $51, and pays royalties on the full amount.)

If the publisher manages to exploit the book in other ways, the author gets various percentages. If Morgan Kaufmann produces a Chinese translation of HOP, I get 5% of the revenues for each copy; if instead they sell to a Chinese publisher the rights to produce and sell a Chinese translation, I get 50% of whatever the Chinese publisher paid them. If Universal pictures were to pay my publisher a million dollars for the rights to make HOP into a movie starring Kevin Bacon, I would get $50,000 of that. (Wouldn't it be cool to live in that universe? I hear that 119 is a prime number over there.)

If you find this kind of thing interesting, O'Reilly has an annotated version of their standard publishing contract online.

[ Addendum 20060109: I was inspired to repost this by the arrival in the mail today of my O'Reilly quarterly royalty statement. I thought I'd share the numbers. Since the last statement, 31 copies of Computer Science & Perl Programming were sold: 16 copies domestically and 15 foreign. The cover price is $39.95, so we would expect that O'Reilly's revenues would be close to $619.22; in fact, they reported revenues of $602.89. My royalty is 1.704 percent. The statement was therefore accompanied by a check for $10.27. Who says writing doesn't pay? ]

[ Addendum 20140428: The original source of Nat's remark about writing is from Gene Fowler, who said “Writing is easy. All you do is stare at a blank sheet of paper until drops of blood form on your forehead.” ]

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